Victory Oil Co. v. Hancock Oil Co.

Citation125 Cal.App.2d 222,270 P.2d 604
CourtCalifornia Court of Appeals
Decision Date17 May 1954
PartiesVICTORY OIL CO. v. HANCOCK OIL CO. et al. VICTORY OIL CO. et al. v. McKENZIE et al. Civ. 19975.

Ball, Hunt & Hart and M. E. Lewis, Jr., Clark Heggeness, Long Beach, for appellants.

McCutchen, Black, Harnagel & Green, Harold A. Black, Philip K. Verleger, Los Angeles, for respondents Hancock Oil Co. and Milton H. Philleo.

Clock, Waestman & Clock, John G. Clock, Long Beach, for respondents Hoffman and Berry.

Eugene Tincher, Long Beach, for respondents Morrill.

John W. Doran, Long Beach, for respondent Ryan.

Desmond & Desmond, Long Beach, for respondent Page Oil Tools, Inc.

MOSK, Justice pro tem.

Certain cross-defendants and one cross-complainant appeal from an adverse judgment quieting title to real property and granting declaratory relief in this case tried on stipulated facts plus the testimony of two expert witnesses.

Hereford Berry and Minnie F. Berry deeded a parcel of real property to J. W. Tucker on March 18, 1922, 'excepting therefrom and reserving to the grantors and their successors in interest all oil, gas, hydrocarbons and other minerals on or under the said described lands * * * provided however that the said grantees shall be entitled to one-half ( 1/2) of all net royalty, rental, or profits received by said grantors under any lease or contract which the said grantors may grant or enter into with any person, firm or corporation for the development of said lands * * *'.

All of the parties to this law suit claim their rights through either the grantors or the grantee.

The deed further provided that 'in the event that oil, gas, hydrocarbons or other minerals shall not be found in paying quantities in or upon said described land within five (5) years from date of this agreement, all rights of said grantors in said land shall cease and terminate and the grantee and his successors in interest shall thereupon become vested with absolute title * * *'.

In the event oil, gas, hydrocarbons or other minerals were found within the five-year period from the date of execution of the deed then the instrument provided 'the rights of said grantors in said lands as herein divided shall continue for a period of twenty (20) years, and so long thereafter as oil, gas or other minerals may or shall be produced therefrom in paying quantities'.

On December 19, 1925, Hereford Berry, as lessor, entered into an oil and gas lease with the Hancock Refining Company, a corporation, and others, as lessees. Through a succession of assignments, not material here, the Hancock Oil Company, a corporation (hereinafter called Hancock), and the heirs and devisees of Louise E. Dabney, deceased, have succeeded to the entire leasehold interest of the original lessees under the Berry Lease.

The original lessor, Hereford Berry, died in 1946, leaving his interest in the lease to Frances M. Hoffman and Hereford Berry, Jr., an undivided two-thirds and one-third respectively.

Pursuant to the lease, three oil wells were drilled in the leasehold property and by December, 1926, were productive in paying quantities. This was within the five-year period. All three wells continued to be productive for nearly two decades but were ultimately abandoned on May 20, 1946.

On January 5, 1931, a fourth well, known as Berry No. 4, was completed and became productive in paying quantities. The surface location of this well was upon the leasehold property but unintentionally it was slant drilled so that its producting interval was approximately 100 feet beyond the exterior boundaries of the Berry leasehold. The producing interval is defined as that portion of an oil well through which oil is taken into the well, thereupon to be raised by mechancial means to the mouth of the well at the surface.

It was conceded in the stipulation of facts, and additionally testified to by both expert witnesses, John O. Richardson for the cross-complainants and A. A. Carrey for the cross-defendants, that in 1922 there was no known way of ascertaining the subsurface location of an oil well, and no way of controlling the subsurface direction of an oil well, that not until the last twenty years have there been in common use underground survey instruments and electric logs to ascertain underground strata.

The trial court found, and there was no evidence to the contrary, that Berry No. 4 was not intentionally drilled outside of the exterior boundaries of the leasehold property as the boundaries are projected from the surface vertifically downward.

Out of production of the four wells appropriate royalties were paid to the appellants herein, it being stipulated in open court, however, that none of them were informed or aware of the fact that the producing interval of Berry No. 4 was located off the property described in the Berry Lease. It was further stipulated that none of the parties tendered back any of the royalties previously received, although all sums have been impounded since August, 1951.

The Victory Oil Company originally brought this suit in simple quiet title form, alleging fee title to the real property involved herein. Thereafter, all of the parties involved in this appeal filed answers and cross-complaints, except appellant Marjory R. Clarke, who is a cross-complainant only. The Victory Oil Company later sought to dismiss its action, and although dismissal was denied for the reason that affirmative relief was sought in the various cross-complaints, it did not participate further in the proceedings.

At the trial John R. Richardson, a petroleum engineer for the Hancock Oil Company, testified that despite the location of the producing interval Berry No. 4 drains oil from the area beneath the Berry Lease. He expressed the opinion that if Berry No. 4 had bottomed underneath its surface location at the time it was drilled it would have been comparable to the existing well. A. A. Carrey, a consulting geologist who had been the engineer in charge for Hancock when Berry No. 4 was drilled, testified that he could not say with any degree of conviction whether a vertically drilled well would have been productive. He indicated some fear that it would have been too close to an existing fault to be a good producer, or a producer as profuse as Berry No. 4. He conceded there was no question that the existing well drained oil from the area directly beneath the Berry property, for the producing interval of a well draws equally from all sides 'like a concentric circle'.

The trial court found that by reason of the fact at the time the deed was written there was no known way to ascertain the subsurface location of a well, the parties intended that there be a well upon the surface of the land producing oil, gas or other hydrocarbons. It found that the Berry mineral rights continue to exist and that the lease was and is valid and in full force and effect.

From this adverse conclusion Paul F. McKenzie, Elenore McKenzie and John M. Clarke, cross-complainants and cross-defendants in certain pleadings, and Marjory R. Clarke cross-complainant, have appealed.

The trial court found that the provision of the deed to Tucker continuing the interest of the grantors for the period of twenty years 'and so long thereafter as oil, gas or other minerals may or shall be produced' violates the rule against perpetuities. Appellant confronts us at the outset of this appeal with the contention that until 1951, California had no rule against perpetuities and that by legislative action in 1951 the mineral interest created by the deed was specifically validated.

Article XX, section 9, of the California Constitution provides that 'No perpetuities shall be allowed except for eleemosynary purposes'. That constitutional provision, read together with section 4468 of the Political Code making the common law, except in certain cases, the rule of decision in this state, has provided the basis for a commonly accepted belief that California always has had the common law rule against perpetuities.

Early cases assume, both in dictum and in decision, that the constitutional provision against perpetuities was self-executing. In the absence of any legislation 'the courts of this State would go to the common law definitions to ascertain the meaning of the expression 'no perpetuities shall be allowed,' as used in the Constitution.' In re Estate of Hinckley, 58 Cal. 457, 472. Estate of McCray, 204 Cal. 399, at page 406, 268 P. 647, at page 650, speaks of 'The rule against perpetuities, ingrafted upon our system by the Constitution, * * *'. And in Dallapi v. Campbell, 45 Cal.App.2d 541, 544, 114 P.2d 646, 648, it was held that 'The rule against perpetuities, as it existed under the common law, appears at this time to be an established rule of property law in this state.' That court also quoted with approval the language of McCray to the effect that the rule against perpetuities is engrafted upon our system by the constitution.

Nevertheless, throughout the years a number of text writers expressed some academic doubts as to the existence of a rule against perpetuities in California. [Gray, The Rule Against Perpetuities, (4th Ed.) pp. 692-693; The American Law Institute, Rest. of Prop., p. 2746, 1 So.Cal.L.Rev. 107; 16 Cal.L.Rev. 81; 9 Cal.L.Rev. 447; 1 Cal.L.Rev. 305.]

This doubt was given additional substance in Re Estate of Micheletti, 24 Cal.2d 904, 908, 151 P.2d 833, 835, in which Mr. Justice Traynor, speaking for a unanimous court, stated that, 'It is appellant's position that the rule against perpetuities is in force in this state by reason of article XX, section 9, of the California Constitution prohibiting perpetuities except for eleemosynary purposes and section 4468 of the Political Code, which makes the common law of England the rule of decisions in the courts of this state insofar as it is consistent with the...

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